AOL, CA lower in pre-open trading

Oracle gains on upgrade; stock futures rebound

By

EmilyChurch

LONDON (CBS.MW) - While shares of Computer Associates and AOL Time Warner led volumes to the downside in pre-open trading, a rebound in stock futures is indicating U.S. share market would start the day on higher ground.

Helping provide a positive catalyst was an upgrade of database software giant Oracle by Banc of America.

Accounting concerns look to take center stage again. Tuesday's hard-hit IBM
IBM, +0.03%
was posting a very modest rebound in London to $99.80, but concerns are surfacing in Computer Associates amid a report in Long Island newspaper Newsday of a preliminary Fed probe.

CA
CA, +0.00%
was down over $3.16, or 12 percent, to $22.15 over the Redibook ECN. Citing sources, Newsday is reporting that U.S. attorney for the Eastern District and the FBI have "launched a preliminary investigation of whether CA violated federal criminal fraud laws through its accounting practices." See full story.

In an early statement Wednesday, CA said it hadn't been contacted by authorities "regarding any investigation and do not know what, if anything, is being investigated. The reporting of our financial results has always been in accordance with all applicable accounting principles.

CA added that "if there are questions, we look forward to being contacted and to having the opportunity to defend against hearsay and what we believe will prove to be unwarranted concerns."

AOL downgrade

Lehman Brothers' Internet analyst Holly Becker downgraded her rating on AOL Time Warner
AOL, -7.20%
overnight to a 'market perform' from a 'buy' after lowering its growth projections for the AOL division. She told clients her concerns for the company center on a slowing narrowband business, a costly transition to broadband, online advertising and the company's European expansion.

"AOL TW is trading at 15.4 times EBITDA. Our analysis suggests that the market is currently valuing the AOL division at 21x times EBITDA -- a rich multiple given its challenges," Becker said. She expects AOL's EBITDA growth rate "will likely be anemic or even decline from 2002-2005 as AOL works through its obstacles."

The stock was down 62 cents in pre-open trading to $24.90, Madoff dealers said. AOL stock is down 19 percent year-to-date and down 64 percent since the merger in 2000, Lehman noted.

AOL traded was down 79 cents, or 3 percent, at $24.73 in early action.

Oracle sees gains

Analyst Bob Austrian at Banc of America has upgraded the Oracle to "buy" from "market perform," as the stock's recent sell-off has created a "valuation opportunity." He has a $20 price target on the stock, and sees downside limited to $12.50.

"Over the past year, estimates have come down to now achievable levels against the backdrop of the weak economy, dot-com implosion and Sept. 11; we believe Oracle's business has, at worst, stabilized and may be showing signs of improvement," Austrian said in a note to clients. "Any improvement in the economy could lead to upside in estimates and results, as well as multiples."

Stock futures bounce

Stock futures have rallied off earlier lows to trade mixed, but are now indicating that U.S. share markets will start the day on higher ground. March S&P futures were up 1.90 at 1,085.60, which is about 2 1/4-points above fair value, according to figures provided by HL Camp & Company. Nasdaq 100 futures were down 1.00 at 1,393.50, but about 3 3/4-points above fair value. Earlier, S&P futs were down as much as 1.50 points at 1,082.20 and Nasdaq futs were 9.00 points lower at 1,385.50.

Among other overnight action from the analysts: JP Morgan Securities telegraphed caution on General Electric's
GE, +0.97%
power business, saying "our analysis suggests a longer and more pronounced industry decline in demand for power generation equipment, owing to the cancellation and deferral of significant projects in the US market." Still, the broker said "although GE could see some downside from Power, we still see 10% earnings growth in 2003-2004."

The stock slipped 10 cents to $36.30.

Also, JP Morgan Securities downgraded its rating on TRW
TRW, +0.00%
to market perform from long-term buy, telling clients the departure of the company's chairman and CEO "may put in doubt, the company transformation... We would rather be on the sidelines until new management is in place."

Merrill Lynch lowered its 2002/2003 earnings estimates for Goldman Sachs
GS, +0.53%
to $4.80 and $5.80 a share from $5.40 and $6.20, respectively. Goldman "seems most leveraged to trends in equity and M&A volumes, also, Goldman seems to have held back on 'rightsizing' its staff levels as aggressively as certain peers in 2001."

UBS Warburg upped Waste Management
WMI, -1.06%
to a 'buy' from 'hold,' telling clients "the turnaround story is still intact."

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